Australian bank turns off advice commissions after govt inquiry

Australia-OZ-Sydney-Opera-House-700x450.jpgNational Australia Bank has said it will turn off “grandfathered commissions” for its advisers as the country’s Royal Commission into the banking sector continues to reverberate.

In a letter today, NAB says it has agreed to all 10 of the Royal Commission’s recommendations for financial advice.

So called grandfathered commissions – trail remuneration on legacy policies pre-dating Australia’s equivalent of the RDR in 2013 – will be removed by the bank as it moves to a “fee-for-service model”.

Clients will benefit from a rebate or fee reduction backdated to January 2019, the bank says.

The firm’s financial advisers will implement new annual renewal and payment agreements for every client from 1 April to replace current ongoing fee arrangements.

The bank has also agreed with a recommendation to improve the way it discloses its “lack of independence”.

The remaining recommendations addressed in a statement from the bank today include new systems for disciplining advisers and reporting compliance concerns, with the bank backing calls for a review in three years’ time to see how the Royal Commission’s measures have improved the quality of advice.

Death of protection commissions, new titles and no fee flexibility: What Australia’s Royal Commission has ruled for advisers

The Commission’s proposals were set out for the Australian advice market after issues such as clients being charged for no service, deceased clients being charged ,and data breaches at the major banks that dominate the market emerged.

NAB chief executive Philip Chronican says: “The Royal Commission’s recommendations will help lead to a better, more customer-focused industry as organisations change in response. The Commission has also rightly challenged NAB to close the gap between where we are today and where we need to be.

“We have to focus on earning back trust and this includes the actions we take in response to the final report and other issues we have faced at NAB. 

“It includes how we compensate customers when we get it wrong; how we pay our people; how we hold ourselves accountable for running the bank and; how we build a culture that puts customers first every time.”

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  1. We have to be VERY careful that there are no unintended consequences if such a development occurred here.

    A big issue with many UK providers is that, if commission is ‘turned off’ the cost to the client doesn’t change.

    On challenging this, time and again, the comment is made that commission is a provider expense.

    I’ve also had cases where, post RDR, pensions (typically with GARs) which were priced to include commission when the annuity is drawn, saw the commission absorbed by the provider rather than being paid – leaving the client to pay fees for any advice (and therefore paying twice for the advice).

    The sunset on fund ‘trail’ created significant work, inconvenience and a number of ‘advice points’ for clients – the cost of which we absorbed. Factor in the cost to platforms too and, more recently Mifid 2, it’s critical that there’s a clear and tangible benefit to investors when sweeping changes are made.

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